Mexico faces an uncertain future with Claudia Sheinbaum

The future president of Mexico and her party will have more power than most presidents before her. The financial markets are reacting nervously to this abundance of power. German companies continue to bet on the country.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

The elections in Mexico were by far the most important political event in Latin America this year – and that also applies to the German economy. On the one hand, it is about the region’s largest economy after Brazil, with which trade – unlike with most Latin American countries – is growing strongly every year.

Secondly, Mexico has become an increasingly important location for German companies in Latin America in recent years. The reason for this is that Mexico’s inclusion in the USMCA free trade agreement with the USA and Canada gives companies access to the world’s largest domestic market. At over 800 billion US dollars, foreign trade between Mexico and the USA is the largest in the world. Mexico has overtaken China as the most important supplier for the US market.

According to surveys conducted by the German-Mexican Chamber of Foreign Trade, more than half of its member companies rate their economic situation as good. Three quarters want to increase their investments in the next twelve months or keep them at the same level.

This makes it all the more crucial to see how Mexico will develop over the next six years under Sheinbaum. But forecasts are difficult.

On the one hand, Sheinbaum, a physicist, has hardly come up with any ideas of her own so far. She repeatedly emphasizes that she wants to continue the policies of her predecessor and political mentor Andrés Manuel López Obrador (AMLO). One reason for this is electoral tactics: The incumbent President Amlo is still hugely successful just a few months before the end of his term in office. More than half of the Mexican electorate backs the left-wing populist.

This also explains why his left-wing nationalist “National Renewal Movement” (Morena) was able to both prevail with its candidate Sheinbaum and win an overwhelming victory in the parallel parliamentary elections.

Together with its alliance partners, the party will in future have a two-thirds majority in Congress, which will allow the ruling party to make constitutional changes practically single-handedly and without consensus with other political forces. In addition, Morena will in future control 24 of the 31 federal states. For many decades, only the Institutional Revolutionary Party (PRI) had such a concentration of power. It seems as if Morena is taking over the legacy of the PRI.

The election result means that Sheinbaum now has a free hand to govern. The question is whether she will follow the course of her predecessor López Obrador.

In his six years in power, he has proven to be a left-wing populist who cares little for democratic controls and the judiciary as long as he is convinced that his policies will benefit the people (and his popularity). Until now, the judiciary, Congress and the media have always been able to slow him down in his quest for executive concentration of power. But that is now a thing of the past.

Amlo attempted to disempower numerous independent institutions. He sought a judicial reform that provided for a plebiscite on the appointment of the highest judges. He tried to limit the influence of the electoral court. Sheinbaum and the Morena party would now have free rein to implement these reforms.

The financial markets reacted correspondingly negatively to the outcome of the election: the dollar gained 7% against the peso at times. The stock market slumped, but recovered again. Mexico’s country risk, as measured by the interest rate premiums demanded by bond investors, has risen significantly.

Investors fear that the Morena party could expand state control over the economy and increase the budget deficit through an unchecked government spending policy. Lopez Obrador already wanted the economy to be increasingly controlled by the state: with state projects worth billions in infrastructure and the energy sector, he ensured that private investors were left behind. Under him, the military has become an important player in the economy.

European investors are also bothered by the fact that López Obrador has completely reversed the previously painstakingly negotiated shift towards emission-free power generation. Amlo’s energy policy focused primarily on coal and oil.

This is also one of the reasons why the agreement already concluded between the EU and Mexico will not be ratified in Europe. Foreign companies in particular are hoping that Sheinbaum will revise Amlo’s economic and location policy, which is not very climate-friendly. Sheinbaum has researched climate policy as a scientist in Mexico and the USA. She is considered a renowned environmental expert.

With Sheinbaum, Mexico could once again play a greater role in the world. Amlo was not interested in foreign policy apart from relations with the USA. During his time in office, Mexico hardly appeared in international bodies, although Mexico’s economic and political weight in the world has increased. With 130 million inhabitants, Mexico is now the 14th largest economy in the world, ahead of Spain.

Mexico is likely to face a decisive dispute with the USA in terms of foreign trade and as a business location: Associations and the government there are bothered by the fact that Chinese companies in particular are trying to circumvent the USA’s increasing isolationist policy towards Beijing by producing in Mexico. The USMCA agreement is to be subject to a joint review in two years’ time. European companies will also be keeping a close eye on the outcome of the renegotiations.

In her first speech as president-elect, Sheinbaum set a clear economic tone. She defended the autonomy of the central bank and budgetary discipline. She said she wanted to promote investment in renewable energies. All of this would be a departure from Amlo’s policy.

In Latin America, there are numerous examples of how elected presidents quickly stepped out of the shadow of their politically like-minded predecessors and continued their policies in a completely different way than expected.

Mexico City
© Unsplash/Luis Dominguez

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